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Acknowledgements
I would like to thank my parents,
Don and Sondra Marshall, for their
love and
continuous support and faith in me.
Their unshakable spirituality has
been an inspiration
to me throughout my life.
To my son, John Christopher, for his
love and support. For his patience
and understanding
with me through the past several
challenging years.
To Lisa Richards, whose love,
understanding and support I have
always been able
to count on. Her steadfastness,
loyalty, and inspiration have been
of immeasurable value
to me.
To my colleagues: Mike Rosberg
(Maytag VP International Sourcing),
Jim Gran
and Mark Champaign (Maytag Sourcing
Directors for Finished Products),
and SW Wu
(Sourcing Director, Maytag Asia
Pacific Sourcing Organization), for
providing me with
the many opportunities to learn and
grow professionally.
To my co-workers and fellow team
members: Tito Sandoval (Hoover
International
Product Procurement Team Leader),
Eric Koh and Gretchen Bercaw (Hoover
International
Product Procurement Team
Buyer/Planners), Barb Deluca, & Kent
Weida
(Hoover - Supplier Quality
Engineers), who’s efforts have
helped make Hoover’s international
procurement activities successful.
The challenges and successes of
working together
with people whom I have come to
respect make my work fulfilling and
meaningful.
I have enjoyed the last sixteen
years at The Hoover Company and
Maytag and am
looking forward to continuing our
international sourcing activities in
the support of
achieving our business objectives.
General Introduction
"Boundaries are shrinking and
disappearing, and what’s becoming
apparent is that
global purchasing and domestic
purchasing are flowing, blending,
and converging into
one stream."
R. Jerry Baker
"Operating in an increasingly
interconnected world, leading
companies perceive
competition as global and are moving
to implement an integrated strategy
worldwide.
Global competitors are learning to
develop and manufacture products
that can be introduced
and marketed simultaneously in many
countries. In doing so, they are
sourcing
technology, materials, and
components from sites and suppliers
located throughout the
world."

Carl R. Frear, Lynn E. Metcalf, and
Mary S. Alguire The Hoover Company,
a division
of the Maytag Corporation, is in
turmoil. Like many other U.S.
manufacturers in
related industries, virtually all of
our competitors have outsourced the
production of their
products offshore to low-cost labor
regions around the world,
specifically in Asia.
Though Hoover senior management was
knowledgeable of these “outsourcing”
trends in
our industry they did not fully
realize the impact that it would
have on the company.
Hoover had considered the quality of
our products to be our number one
strength
and, to a large extent, believed
that the best way to maintain this
quality was to keep the
production of our products in our
own North American manufacturing
facilities.
Further, management viewed many of
the moves overseas by our
competitors as a
“last gasp” effort to save their
brands. Up until a few years ago,
Hoover senior management
did not believe that foreign
manufactures were capable of
achieving the level of
quality that would be necessary to
effectively compete against us in
the U.S. market.
They couldn’t have been more wrong.
The challenges that face the Hoover
Company, Maytag, and many other U.S.
based manufactures due to low-cost,
foreign manufactured products
competing with
American made products in the U.S.
market are significant. Many
companies, such as
Hoover and Maytag, are meeting this
challenge by developing their own
international
sourcing strategies to outsource the
production of products outside of
the Unites States.
Thesis Abstract
The purpose of this dissertation is
to explore what is required for a
company to be
successful in international
procurement and outsourcing.
My research suggests that there are
many actions that companies can take
to increases
their chances of success as well as
minimize their exposure to risks.
Through a combination of: research,
personal business experience at The
Hoover
Company and Maytag, as well as the
documented experiences of other
companies, I will
address each of the following
questions:
• Why has outsourcing become so
popular to U.S. based companies in
such a
short period of time?
• What are the benefits and risks of
international / global outsourcing?
• What are the cultural issues and
challenges that U.S. based companies
need to
be aware of when dealing with
foreign based manufacturers?
• What are the key transactional
processes that are critical to
achieving a successful
sourcing program and relationship
with foreign suppliers?
• What are the major distinctions
between China, Mexico, and India as
low-cost
labor countries relating to
international purchasing and product
outsourcing?
• What is the current political
climate in the United States
regarding the loss of
U.S. jobs attributable to
international outsourcing?
Table of Contents

•
China..........................................................................................
46
•
Mexico.......................................................................................
58
• Analysis: China vs.
Mexico.......................................................
60
•
India...........................................................................................
64
Chapter Six
Conclusion
• Political Considerations in the
U.S. Re: Outsourcing ...............
72
• America Fights
Back.................................................................
74
•
Summary....................................................................................
78
Bibliography
................................................................................
79
Chapter 1:
Today’s Business Environment and
Challenges
Outsourcing Trends
“Not made in America? Who cares?” A
recent survey sponsored by Marketing
Support Inc., a Chicago based
branding agency, confirmed what many
already knew; that
it doesn’t much matter to many U.S.
shoppers – especially the younger
ones – where the
stuff they buy comes from.
Politicians may rally against
Benedict Arnold CEO’s shipping work
abroad, and
unions may bemoan the loss of U.S.
factory jobs. But do Americans care
where the stuff
they buy was made? Not much, it
turns out, and that apathy could
hasten the offshore
movement.
When shoppers for home improvement
or home decorating products at
big-box
retailers were surveyed, seven out
of ten people said that they don’t
look at the country of
origin. What’s more, 57% say the
national source has little to no
effect on what they toss
into their carts. The percentages
are notably higher for those aged 18
to 24: Nearly 85%
in that group don’t know where the
products that they buy come from or
care.
The report predicts that the
acceptance of foreign products will
only grow, as
more nationalistic seniors die off
and are succeeded by laissez-fair
youth. Another factor:
The quality of many imported goods
has greatly improved, negating a
selling point many
American manufacturers once had.”
(Michael Arndt, Not Made in the
U.S.A.? Who Cares?
BusinessWeek online, May 2004)
Explaining Growth: Globalization and
Cost
“The dramatic pace of growth in many
developing countries comes from many
internal
and external factors. From a
commercial standpoint, this growth
can be attributed
primarily to two key factors:
• Multinational corporations
building significant operations
abroad to take advantage
of skilled, low-cost labor.

• Global firms sourcing both
products and services from offshore
suppliers to reduce
cost margins and increase
competitive positioning.
The cost advantages low-cost
countries afford can be huge.
Compared with Western
nations, skilled manpower in
low-cost countries in Asia like
China and Thailand can
cost between 50 to 75 percent less,
while unskilled manpower can be as
much as 95 percent
cheaper. Significant savings go
beyond labor costs to reduced costs
on production
and manufacturing equipment.
Tooling, for example, cost roughly
30 to 50 percent less in
low-cost Asian regions than it does
in North America and Western Europe.
At the same
time, increased globalization has
brought with it fewer trade
restrictions and tariffs, lowering
the costs of doing business with
low-cost countries even more.
While many organizations are just
getting started with low-cost
country sourcing,
a number of global organizations
have begun to adapt their entire
supply chain to take
advantage of the opportunity. For
example:
• According to Rubber and Plastics
News, Goodyear plans to “nearly
double by
2005 the percentage of tires it
sources from Asia for North America
and Europe.”
• Home Depot, the hardware concern,
has opened two sourcing offices in
China,
one in Shanghai and another in
Shenzhen, to “greatly enhance their
opportunity to purchase
more goods directly from
manufacturers” with the goal to grow
its imports to about
ten percent of sales in stores.
• Wal-Mart, one of the more
operationally efficient corporate
giants, has already
leveraged global sourcing to
dramatically improve its bottom
line. In Wal-Mart’s Q1
2003 conference call in May of this
year, the company noted that
“Consolidated gross
margins were up 20 basis points in
the quarter due to improved mix and
the benefits of
global sourcing.” In addition,
Wal-Mart has leveraged its global
sourcing initiatives to
compete on price against competitors
globally, especially in Europe,
where the company
was late to the market.” (Bush,
Connell, and Lee of FreeMarkets
Inc., Low-Cost Country
Sourcing – An Executive Overview,
2003)
Caution is the Key
The move to low-cost country
sourcing is not an easy transition
for many companies.
It isn’t simply a matter of building
a new factory or searching for new
suppliers in a
low-cost country. There are unique
challenges and additional risks that
organizations
must plan for and mitigate, from
cultural challenges to quality and
on-time performance
issues. Companies must balance the
tremendous opportunity that low-cost
country sourcing
presents with the risks it can
create in order to reap true
benefits.
Indeed, low-cost country sourcing
can bring significant up front costs
without any
guarantees of success.
Traditionally, companies often pay
considerable sums in order to
make low-cost sourcing work – from
the millions it can cost to set up
IPOs (International
Procurement Offices) to the large
fees (up to 20 percent paid to
brokers) to name just a
few of the costs. This traditional
approach has yielded mixed results
for some companies,
and created a cycle where high fixed
costs have turned into sunk costs.

How to Configure Success Through
Outsourcing
• Going offshore for economic gains
will only work if you closely and
carefully
manage your partners. “For many
logistics and purchasing
professionals, the word configure
can sound a bit intimidating. In
reality, though it may sound like a
technical term,
configuring is really just part of a
relatively painless process called
outsourcing.
Obviously, tackling outsourcing from
start to finish can be a cumbersome
task.
There are many decisions to be made,
from selecting an outsourcing
provider to determining
which business components to
outsource to configuring the system.
Listed below
are some of the key decision-making
steps you'll confront.
Start with an assessment of your
company's strengths and weaknesses.
If your
company has optimal resources in the
area of R&D or sales and marketing,
for example,
that is where you should focus.
Every company has its own budget and
finite dollars to spend in creating
and distributing
products. Financial resources and
personnel should be directed toward
the area
where a company shines, not to areas
that can be successfully handled by
an outsourcing
partner. When done right,
outsourcing can free up resources,
both cash and management
that can be better spent on
innovation and growth.
• Keep pace with your competitors.
Don't follow a path to
self-extinction by operating in a
vacuum. To survive in to-
day's competitive marketplace,
companies of all sizes need
affordable and reliable product
assembly and delivery, and most
can't do it all themselves. While
many companies
are resistant to the latest
offshoring trends, they need to wake
up to the reality that offshore
companies are becoming their direct
competitors, if they aren't already.
You can
outmaneuver your competitors with a
strategic outsourcing initiative if
it's a proper fit for
your business.
• Don't just go with your gut.
Evaluation of an outsourcing
provider goes beyond liking your
rep. It's always
important to trust your instincts.
However, are you willing to risk
unhappy customers by
selecting a company based on a
relationship alone? Check
references, not just one, but a
current customer in both the small
and large categories, and two former
customers.
Look for a strong financial
foundation and high sense of
security. A long-standing
business with customer testimonials
to back it up and the security
systems to keep proprietary
information safe are key.
Develop a relationship with the
outsourcing provider by visiting
them to see their
capabilities and infrastructure, as
well as the quality of their people,
which translates to
their ability to serve your needs
through their resources.
Having an outsourcing partner with
professionals trained in specific
areas managing
the process can help enhance
accuracy and quality. Well-run
outsourcing companies
have resources that allow them to do
specific tasks more efficiently, and
these cost savings
are passed on to customers.
• What to outsource?

For starters, consider the
high-volume, stable products that
don't change much in
type or quantity over time. If a
product is volatile, it might still
make sense to set up some
type of logistical chain to get it
made or assembled elsewhere. Using a
third-party distributor
to remove the internal hassle of
dealing with product volatility may
help manage
fluctuations.
What about warehousing and
transportation? Ideally, the same
provider handling
the parts and assembly can do this.
The various tasks come together more
easily when
fewer sourcing companies are part of
the plan from dock to distribution.
This way companies
don't have to chase down their own
raw materials suppliers, provide
shipping, or
worry about meeting production
deadlines when a shipment from a
supplier is delayed.
Comparing quotes.
When comparing quotes, be sure to
compare apples to apples to get the
total
landed cost. This should include
component sourcing, inventory,
service lead times,
change controls, warehousing,
distribution and transportation to
your plant or to your cus-
tomer's facility. Knowing the grand
total and what it includes helps end
users of outsourcing
services save money and pass along
savings to their own customers.
A solid outsourcing partner will
offer options and solutions, not
complications
and hassle. If a quote on an
assembly was requested, what about
the sub-assembly, customs
clearance and cross-border
transportation with final
distribution to the end user? A
legitimate outsourcing provider will
also tell a logistics officer when
it simply doesn't
make sense to outsource that
component or service. Sometimes the
answer is "no," or the
answer is not a single solution but
multiple options. A modular recipe
is desirable with
various components segmented as a
menu on the proposal.
What about geopolitical factors and
duties/tariffs?
Working with foreign entities is a
learning process. There's nothing
like on-site
evaluation, especially when it's not
obvious through news tracking. Go to
the country and
look around. If it seems like chaos
and instability, it probably is.
Sure, it might be the
cheapest deal in terms of labor
costs, but if the news yields
stories of political unrest over
time, it's best to look elsewhere.
Too little or too much
police/military personnel, lack of
traffic control and illegal
behaviors occurring in broad
daylight without consequences are
all bad indicators . None
of these things can be determined
without a trip to the country to
view it first-hand.
The unavoidable duty/tariff is never
a factor to ignore. In fact, this
fee can completely
change the bottom line cost. It
basically comes down to the country
of origination
of the raw materials, where they
enter the country (via U.S. or
Mexico, etc.) and in what
form. Because of a free trade
agreement, the materials could be
duty-free if handled
within legal guidelines for a
specific country. To cite an
example, hardwood plywood is
cheapest in Brazil. When brought
into Mexico there is an 18% duty
rate, but it's still
cheaper because if the plywood is
cut up in Brazil, it has no duty
coming into Mexico.
Duties are different in various
countries, and there are legal
loopholes based on
the customs classification of
materials. Raw materials versus cut
or partially assembled

materials play a factor in many
cases. A good outsourcing provider
will know this and
should be able to provide counsel.
With the evolving market, global
trade allows the lowest possible
resulting cost.
The trend toward offshore
outsourcing is here to stay, so
learning how to work the logistics
chain from the supplier's supplier
to the customer's customer is
critical to staying in
business. Those who lead in
accomplishing this will dominate the
marketplace in 2004
and beyond.” (Laird Carmichael,
executive vice president of
International Outsourcing
Services LLC)